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Agrimarketing : October 2012
mobile banking allow for timely and efficient movements of cash and electronic access to historical transactions. Commodity price and interest rate data are available in real time and transactions can be performed electronically. It is likely that as the relationship- driven generation retires, customers will move towards a high- technology, price driven relationship. CROP INSURANCE Federal crop insurance program was authorized by Congress in the 1930s as an experimental means to assist agricultural producers recover from the Dust Bowl and Great Depression. The original programs suffered from low participation. The passage of the Federal Crop Insurance Act of 1980 marked the foundation of the current federal crop insurance program. The Act expanded the program to include more regions and crops. Moreover, the Act included explicit provisions to increase farmer participation with the intent to reduce federal ad hoc disaster payments. However, after the passage of the Act of 1980, sizable disaster payments occurred in the droughts of 1981, 1988, and 1989. Ad hoc disaster payments from flooding and drought also occurred in 1993 and 1994. Participation in the crop insurance program remained lower than anticipated. The widespread crop losses in 1993 led Congress and the Clinton Administration to pass the Crop Insurance Reform Act of 1994 which authorized additional premium subsidies to motivate additional participation. The new program offered catastrophic insurance coverage and participation rates rose substantially. Despite the increases in participation, Congress provided ad hoc disaster payments in 1998, 1999 and 2000. Congress passed additional legislation (Agricultural Risk Protection Act) in 2000 that provided additional subsidies to encourage participation. Table 1. Shows that federal crop insurance has grown substantially since the 1980s. Insured acres have more than doubled since 1990. The number of insured crops has increased to more than 300. Insured acres have remained relatively constant since 2005. However, liabilities have increased substantially due to the increase in commodity prices, higher value insured crops, and higher coverage levels. The complexity and range of crop insurance products have also expanded. Revenue and county- based insurance products have allowed producers to manage risks based on prices, individual yields and county-based yields. Given the federal subsidy levels of crop insurance combined with U.S. budgetary pressures and linkages to federal government commodity programs, it is likely additional changes to crop insurance are forthcoming. AM 64 Agri Marketing October 2012 Ag Credit | Overview | continued from page 63 Dr. Paul N. Ellinger is a Professor specializing in finance and accountancy at the University of Illinois. He received a Ph.D. in the Department of Finance at the University of Illinois. He is currently Head of the Department of Agricultural and Consumer Economics at the University of Illinois. He was raised on a grain farm in Livingston County, IL. He can be contacted at firstname.lastname@example.org “ Federal Crop Insurance participation has grown substantially. ” Source: USDA, Risk Management Agency U.S . CROP INSURANCE PROGRAM 1981-2011 Table 1. 60-64 am agcredit_10.12.qrk:52-56 am machinery_10.12 10/25/12 3:13 PM Page 64
November December 2012